The Risk of Trading is a practical resource that takes an in-depth look at one of the most challenging factors of trading - risk management. The book puts a magnifying glass on the issue of risk, something that every trader needs to understand in order to be successful.
Most traders look at risk in terms of a "stop-loss" that enables them to exit a losing trade quickly. In The Risk of Trading, Michael Toma explains that risk is ever-present in every aspect of trading and advocates that traders adopt a more comprehensive view of risk that encompasses the strategic trading plan, account size, drawdowns, maximum possible losses, psychological capital, and crisis management.
- Shows how to conduct a detailed statistical analysis of an individual's trading methodology through back-testing and real-time results so as to identify when the methodology may be breaking down in actual trading
- Reveals why traders should think of themselves as project managers who are strategically managing risk
- The book is based on the author's unique 'focus on the risk' approach to trading using data-driven risk statistical analytics
Using this book as a guide, traders can operate more as business managers and learn how to avoid market-busting losses while achieving consistently good results.
About the Author xv
Part I Principles of Risk Management 1
Chapter 1 Foundations of Risk Management 3
Chapter 2 Five Steps in the Risk Management Process 11
Part II Managing and Measuring Risk 61
Chapter 3 Predictive Analytics Using Quantitative Analysis 63
Chapter 4 Statistical Edge and Its Impact on Risk 71
Chapter 5 Embracing a Culture of Analytics 113
Part III Qualitative Elements of Risk 145
Chapter 6 The Human Element: Psychological Risks of Trading 147
Chapter 7 Preparing for Risk and Loss 161
Chapter 8 Business Risk Management for Traders 181